Archives for January 2021

Tercera launches to invest in people, not products

Tercera Looks to Accelerate Technology Professional Services Businesses Specializing in the Third Wave of Cloud Computing

EVERYWHERE – Jan. 28, 2021 – Tercera, a new growth-focused investment and advisory firm specializing in technology professional services, launched today to accelerate consultancies and managed service providers in the $460 billion cloud services space. Tercera will put $225 million in equity capital to work building the next generation of cloud leaders, focusing on services firms that specialize in analytics, automation, data, security, enablement and management of cloud technology.

The company, which is led by a team of seasoned investors and advisors who are deeply ingrained in professional services, is on a mission to empower the people and businesses who make technology work. Spanish for Third, Tercera provides those leading the cloud’s Third Wave with the capital, counsel and connections they need to scale faster, do more and achieve outsized outcomes in today’s digital age.

CEO Chris Barbin founded Tercera based on his experiences as the co-founder and CEO of Appirio and his recent work as a Venture Partner at GGV Capital. Appirio, a pioneer in cloud services, was among the first enterprise services partners of Salesforce, Google, Workday and AWS. Barbin led Appirio to be one of the largest cloud consultancies before it was acquired in 2016 for $500 million. The Tercera team is seeking to help other services companies achieve similar success in a market segment that has been historically neglected by other investment firms.

“We believe the professional services space has been underserved by investors for too long, especially as it becomes clear just how important these partners are to customer adoption and market growth,” said Chris Barbin, founder and CEO of Tercera. “Cloud professional services is already a massive market opportunity, growing more than 20 percent year over year. With the pandemic driving more digital connections with customers, partners and employees, and enterprise cloud adoption happening faster than expected, we believe this market is poised for significant growth over the next few years.”

“Businesses rely on cloud computing like never before and it underpins so much of the innovation happening in technology, so it’s not surprising cloud professional services are booming on G2,” said Godard Abel, founder & CEO of G2, the world’s largest B2B tech marketplace. “Businesses are in dire need of systems integrators and managed service providers who can help them manage their increasingly large and complex cloud deployments, and yet the capital flowing into this space has significantly lagged investment in the technologies themselves. Tercera fills a gaping hole in this area, and we’ll be closely watching the firm’s portfolio in the coming years.”

Trilantic North America, a private equity firm that manages aggregate capital commitments of $9.7 billion, partnered with Chris to form Tercera, joined by a network of individual investors aligned with Tercera’s people-first vision. Tercera looks to partner with services firms that are founder-led, growth-focused and cloud-driven.

Tercera typically takes a minority stake in companies, investing between $5 million to $20 million of capital, selectively partnering with other firms and strategic investors as businesses scale. However, the company will provide more than just growth capital. It is also building out a services-oriented Advisor Network that will provide practical and diverse guidance and support to founders.

“Capital is only one component to growth,” continued Barbin. “Experienced guidance and a support network play an equal role in helping founders and teams scale faster and more gracefully than they could on their own. The Tercera Advisors are services professionals who have built, bought and sold services organizations, or run critical functions in services businesses. They bring the pattern recognition, diversity and playbooks that growth companies need.”

Useful Resources
Definition and players in the cloud’s Third Wave
Read Tercera’s people-first manifesto
Connect with Tercera on LinkedIn
Follow Tercera on Twitter at @TerceraCapital
Follow Tercera’s blog for news, trends and advice in cloud services

About Tercera
Tercera is an investment and advisory firm founded to accelerate the growth of people-centric businesses. Specializing in the $460 billion cloud professional services market, the Tercera team is composed of invested operators who know first-hand what it takes to build and scale a successful cloud services business. Tercera (Spanish for ‘third’) is on a mission to identify the people and partners who will lead the next wave of cloud computing – the Third Wave – and provide them with the capital, counsel and connections they need to scale faster and take an outsized share of the market. For more information, visit: https://www.tercera.io/.

Looking for a new breed of cloud-driven professional services firms

While Tercera’s mission centers on empowering the people and businesses that make technology work, our investment thesis is a bit more focused (we believe strongly in having focus). More specifically, we invest in professional services firms that are defining and driving the next wave of cloud computing. We call this next wave, the Third Wave, and it’s why we named the firm Tercera (Spanish for third).

We believe the Third Wave is the biggest wave yet now that cloud technology is no longer the new kid on the block. In the last 20 years, cloud computing has fundamentally changed the way we do nearly everything, and the days of arguing whether enterprises are ready for the cloud or which cloud is better are long behind us.

Since the 2000s, when the First Wave hit, companies have been wading into the cloud in varying degrees. That first wave, driven largely by the dot.com bust and 9/11, was mainly focused on SaaS applications, department-centric apps that were focused on improving productivity. Think Salesforce for sales teams, ServiceNow for service teams, Workday for HR teams, and Concur for finance teams. You get the picture.

During the next decade the cloud’s Second Wave formed, fueled at least partly by the 2008 recession. In this wave, cloud platforms took root in the enterprise. Productivity was still important, but with businesses struggling, profitability and performance became more important. In this wave, we saw the rise of Amazon Web Services, Microsoft Azure, and Google Cloud, while First Wave software vendors acquired and developed their own platforms to expand their foothold in the enterprise.

We’re now in the Third Wave, which like previous waves builds on those earlier waves. Productivity, profitability and performance are all driving forces for cloud adoption, but now it’s also about creating connections and optimizing existing processes in an increasingly digital world. Companies of every size that are no longer new to the cloud are finding new ways to create their own unique, customer-centric digital experiences using hundreds of cloud building blocks. And they need help.

Digital experiences aren’t created with the snap of a finger. They require people. People who have the insight, skills and proven knowledge to design, develop, implement, test, manage and evolve these experiences, and those people are not easy to find. It’s one of the reasons why we’re already seeing an influx of capital investment in training programs and people-based businesses, and it’s why we believe the Third Wave is going to be huge for professional services.

 

The Opportunity for Cloud Professional Services

The cloud professional services category is already a $460B market growing north of 20% YoY. Nearly 7500 systems integrators already call this category home. And with 34% of companies planning to accelerate their cloud migration plans post pandemic (BCG) and enterprises speeding up their digital business initiatives by three to six years, we believe those numbers are poised to grow — opening up a huge opportunity for new software vendors and their partners.

The software vendors that led the first two waves of the cloud – companies like Salesforce, ServiceNow, Amazon, Microsoft and Google – will continue to play a big role in this Third Wave. One only has to look at the amount of M&A activity among these firms to see that.

However, there is a new set of software providers experiencing huge growth in this next wave. Vendors like Okta, Twilio, HashiCorp and Snowflake(just to name a few) are giving enterprises the tools they need to manage their increasingly complex hybrid-cloud environments, to fortify their security position, and to take advantage of the innovation happening in DevOps, AI and RPA (just to name a few). And these vendors have just begun to build out their partner ecosystems.

Together with our capital partner Trilantic, Tercera researched 30 of these Third Wave vendors and discovered that while Salesforce, Amazon, Microsoft, and Google all have thousands of service providers in their ecosystems, many of the emerging vendors have fewer than 300 partners. Until recently, many of them have been able to rely on a bottom-up adoption scheme, which works to a point. But in order to embed cloud systems into an enterprise, you need people who can handle everything from the integration and implementation to the training and ongoing maintenance.

It’s here where opportunity lies. Especially for the cloud-driven professional services firms that can bring the technical chops, delivery models and outcomes that these new vendors need from partners.

Just as Salesforce looked to the first generation of cloud-driven services firms — that delivered faster results, had more agile processes, and teams with specialized skills that the Global Systems Integrators didn’t yet have — this new generation of vendors will demand a new breed of partner.

These are the partners we are looking to identify, to partner with and to empower. If you believe your firm is part of this new breed, hit us up here.

Empowering growth-focused businesses and people

We’re on a mission to change the equation for people-based businesses.

Companies and leaders come to a certain juncture in their journey when it’s necessary to rethink the approach that gotten them to where they are. Growing to $5M in revenue is not easy, but in those early stages, a powerful vision, a few talented people and customers and sheer brute force can get you pretty far. However, what might fuel initial growth spurts cannot necessarily sustain a company in the long-term. Growing an organization north of $100M takes a different approach and a different set of skills.

Not every leader is ready to scale their company beyond that first plateau, which is why the world is packed with hundreds of thousands of small professional services firms that do amazing work, but never get beyond $5M or $10M. As experts agree, it takes a growth mindset and more process-oriented approach to build something that goes beyond that, something that endures.

Our goal at Tercera is to identify those who are ready, who do have that growth mindset. And then to empower them with the capital, counsel and connections they need to grow bigger and faster than they could without help.

We believe capital is the easy part. There are plenty of equity partners out there, but finding one that really understands your space and can provide the specific counsel and guidance you need to get beyond those first few plateaus of growth is difficult. This is where the magic of our methodology and advisor community comes into play.

 

Tercera’s 5 Elements Methodology

 

We developed Tercera’s 5 Elements for Scale based on decades of experience operating and selling professional services businesses. It is the framework we use when evaluating potential portfolio partners, the methodology we use during our first 100 days of working with a partner to prioritize where investments can make a difference, and how we look at building out our Advisor network. Over the years, we’ve found that most companies are great in one or two areas, good in a couple more, but could use help in the others.

Our 5 Elements for Scale are broken up into (this should not surprise you) 5 areas:

Leadership & Talent: The people piece of the puzzle, always integral to the success of any company, is critical in a professional services company. In this area, we look at everything from the strength of an organization’s culture and diversity, to its recruiting and onboarding capabilities, to its leadership development and overall talent management processes.

Corporate Strategy: In early stage growth mode, many leadership teams lean more towards execution than strategy. For sustainable growth, you need both. This element looks at a firm’s strategic planning process, brand and marketing capabilities, sales and account management strategy, and how M&A and international expansion come into play.

Solutions & IP: The professional services firms that will lead in the cloud’s Third Wave will offer a different set of skills and delivery models than those who led in previous waves. Expertise in cybersecurity, AI, DevOps, and hybrid cloud operations are needed more than ever, and vertical IP and productized solutions are no longer nice to have, but must haves. This element looks at a firm’s overall portfolio, reusable assets, product roadmap and more.

Channels & Partnerships: For services companies, success often depends on going to market with the right ISV as well as creating the right partnerships to grow revenue, attract customers, and expand awareness. This element looks at a firms’ overall market positioning, alliances strategy, channel marketing and adjacent partnerships.

Operations & Processes: While this element may be listed last, we find it’s the one with which most younger services firms need the most help. Startups tend to look at process as a bad thing, but when it comes to scaling, having solid processes matters a lot. Those firms that are buttoned up in how they manage their financials, delivery operations, talent, marketing and sales processes have a big leg up on the competition.

 

Growth comes from all directions

While we believe this methodology can make a huge difference in preparing leaders and their organizations for that next phase of growth, if it falls upon deaf ears, it’s of little value. This is why we look for potential portfolio partners with a growth mindset — specifically, founders who are coachable and open to change. Not because we want to change everything about a company or tell founders how to run their business, but because every great company goes through periods of change, transition, and even reinvention. And we want to work with great companies.

When we say coachability, it means people who are open to feedback, self-aware, good listeners and lifelong learners. You’d be surprised at how easy these traits are to recognize, even in first meetings. Coachability is a key trait shared among leaders with the highest potential and it’s integral to building trusting relationships. People want to work with and for leaders who know their own strengths and limitations, who can acknowledge problems when they arise, and who surround themselves with others that have that same mindset.

If that sounds like you, and you are ready to do bigger things with your business, hit us up here.

Tercera’s belief in founder-led businesses

We believe strongly in the power of founder-led businesses for two main reasons.

First and foremost, we believe in founders because founders believe in their companies. Their business is personal to them, and that gives them a unique combination of vision, passion and mission that is essential to building something that lasts.

Secondly, data shows founder-led technology businesses tend to outperform companies who are led by hired guns. It isn’t always the case, but it’s the case more often than not. Studies featured in HBR and Reuters (among others) show that companies that still have a founder at the helm often do better in price performance, profit growth, innovation and recovering faster from a crisis.

 

Founders have a passion that fuels their mission

Founders will run through a brick wall to see their mission come to life. Whether it’s their entrepreneurial mindset, personal connection to the mission, or sheer perseverance, they’re virtually unstoppable, and that kind of passion is contagious with customers, partners and employees.

You can feel it in leaders who still helm the companies they founded: Jeff Bezos’ obsession with customer-centricity, Marc Benioff’s dedication to making Salesforce a platform for change, or Reed Hastings’ quest to reinvent entertainment. It’s not just the big guys either. Smaller technology players like Twilio, Okta, Slack, HashiCorp, who still have an active founder continue to outperform their peers and see huge valuations.

It’s this mix of passion and mission that keeps a company going even when there are only a few wins to celebrate — a situation every company goes through no matter how great it is. It’s what inspires other people to work hard, stick around, and treat every customer like the business depends on it. In professional services, where hundreds or thousands of consultants might be customer facing, and where recruiting and retention is a KPI, this mix is even more important.

Don’t get us wrong, the 1s and 0s are still important, and you still need to find great technologists, but people aren’t loyal to bits and bytes. They’re loyal to people. And founders — the exceptional ones — care about the people and the culture that binds the company together.

 

Freedom for Founders to Build and Lead

We don’t just look for exceptional founders, we also give them the freedom to do what they do best – build and lead. This is one of the reasons we typically choose to take a minority rather than majority stake in our investments.

As former operators and founders ourselves, we take more of an entrepreneurial mindset, not a strictly economic one. We’ve been there. We know the challenges and opportunities that come with scaling a professional services business. What it takes to grab market share and break through those plateaus of growth – getting beyond $10M or $50M to $100M and beyond. Breaking through those first few plateaus can be tough and many people do it, but the decisions and sequenced investments needed to navigate beyond $50M are considerably more challenging. We know what it takes to scale a services business, and how to sustain profitable growth over time. Part of that is capital, but that’s only a fraction of the equation.

Our role as invested operators isn’t to take over that journey for our portfolio founders, it’s to give them the guidance, capital and connections they need to navigate the journey for themselves.

Tercera balances the world of private equity in that we provide guidance to operationalize and scale a business, and the world of venture capitalism in that we come in early and help founders and ideas flourish.

If it sounds like the kind of partnership you’re looking for in your journey, hit us up here.